Craft Beer Community Conflicted by Macro-Brewer Power Plays

SMITH BRAIN TRUST -- As craft beer booms, Anheuser Bush InBev appears to be defending and expanding its market stake. The world’s biggest brewer wants to buy its biggest competitor, SABMiller, and subsequently claim about 57 percent of global industry profits. It’s also paid $200 million to add four craft beer makers to an already extensive collection of brands. Among those, a January 2015 takeover of Elysian coincided with the brewing giant’s Super Bowl ad poking fun at the craft beer community's bizarre beers, such as a Pumpkin Peach Ale. Ironically, Elysian had brewed a Pumpkin Peach Ale just months earlier.

Is Goliath swinging hard at David? A San Antonio craft brewer thinks so, telling Bizjournals: “A-B InBev will continue to buy up retailer shelf space, and distribution costs will rise and sales will drop for the small breweries due to less exposure in the marketplace.”

But marketing professor William Rand at the University of Maryland’s Robert H. Smith School of Business says, “Anheuser Busch InBev already outspends the largest craft brewery (Boston Beer Co. with its Sam Adams brand) in marketing by about $7 billion to $250 million. If the mega brewer doubled this spending, it would have little or no impact on craft brewers’ ability to compete.”  

Despite being dwarfed in promotional spending, craft brewers last year produced 22.2 million barrels, for an 18 percent rise in volume and a 22 percent increase in retail dollar value from the previous year. This stems in part from the brewers’ focus on product quality and targeting niche, not mass, consumption, says Rand, director of Smith’s Center for Complexity in Business.

True to the industry’s clubbiness, its trade group, the Brewers Association, discourages members from selling out to big brewers and excludes sellouts from its annual Top 50 list of craft brewers. Among exclusions: Goose Island. But this brewer is perceivably a success story. AB-InBev purchased the Chicago brew pub’s label in 2011. But the founders continue to produce their beer on a bigger, more lucrative scale. “They’ve brewed the difficult-to-find Bourbon County Stout," Rand says. “But AB-InBev’s acquisition made the locally iconic brand much more available –- globally and without compromising its quality.”

Rand says the macro-brewer approach of buying up craft breweries but leaving them alone is good for the smaller brewer, as in Goose Island’s case, and good for craft consumers who can experience a new, unique flavor from another region. “At the same time, though, some of the brand’s original, loyal buyers will end the relationship because the beer is easy to come by,” he says. “But this is a fairly small market since most consumers place quality ahead of rarity.”

Further in Goose Island’s case, quite a bit of social media conversation refers to the brewer as having "sold out," subsequently influencing parts of the craft brewing movement to turn their backs on the company. “However, this does not seem to have had a massive effect on most of the market,” Rand says.

Echoing both Rand and the worried small brewer from San Antonio, Smith School professor and economist Peter Morici told the BBC that the craft beer market is thriving, but regulators need to keep an eye on the macro brewers. “The trick here is we can’t let this (potential AB InBev-SABMiller merger) tie up the store shelves the way we have allowed Pepsi and Coca-Cola," he said. "We used to have lots of soda manufacturers in the U.S. that made very interesting products -– I grew up with them in New York City.”

Morici says a basic problem is that smaller producers can’t get shelf space. "And that’s where the Federal Trade Commission, the Justice Department and the Competition Policy Group in Europe need to really focus" to make sure there’s always room for craft brewers, he says.

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